Forget Mexico: Ford Moving Focus Production From U.S. To China, With Eye On Profitability

Ford Focus vehicles seen on a storage lot. The small car is a good value for many buyers, but sales are declining and the company loses money making them. So an all-new Focus will be built in China and exported to the U.S. (AP Photo/Carlos Osorio)

Ford has a new CEO, and already the company is changing its Focus -- literally. And we will have to watch Twitter to see if President Trump approves of the changes.

The automaker that has been so much on the president’s radar screen this year said today that it will move production of the Focus compact car from Michigan to China when it introduces an all-new model in 2019, reversing a previous plan to move assembly of the car to a plant in Mexico.

The Michigan-to-Mexico move was loudly decried by Trump even though it meant no loss of U.S. jobs, as Ford planned to replace the Focus production in Michigan with two new vehicles. The president has been urging U.S. manufacturers to move their production from Mexico and abroad back to the U.S. This move, from Mexico, which still has the benefits of the North American Free Trade Agreement, to China, for one of Ford’s high-volume passenger car models and a key vehicle to attract first-time car buyers, reflects the harsh reality that most carmakers lose money on small cars.

Ford sold 169,000 Focus vehicles in 2016, a 17% decline from 2015, due in part to the fact that the current Focus is a bit dated, and late in its design cycle compared with rivals like the Honda Civic, Toyota Corolla and Hyundai Elantra. And though Ford does not release the percentage of those sales that are commercial and rental fleet, it is believed to be as much as 25%. Fleet sales are notoriously unprofitable. The current Focus debuted its current look in 2012.

“We’ve done a lot of research and consumers care a lot more about the quality and the value than they do about the sourcing location,” Joe Hinrichs, Ford’s president of global operations, said in a conference call with reporters Tuesday. “iPhones are produced in China, for example, and people don’t really talk about it.”

The chief rivals in the compact car market–Honda Civic and Toyota Corolla–are both made in the U.S., in Marysville, Ohio, and Blue Springs, Mississippi, respectively.

Car companies like Ford make almost all their profit on pickup trucks and SUVs. Small cars like Focus and Fiesta have traditionally been loss leaders to attract buyers to the brand at prices below $20,000, and also to enable the company to offset the low fuel-economy of their trucks and SUVs and meet government regulations on fleetwide fuel economy. Most car companies try and fill every need an individual or family might have in terms of vehicle type and cost, but they can't make a profit on each one.

The strategy with the new Focus debuting in 2019 is that it will no longer be a loss leader, or even the econ-car it is now. It will be more spacious, come packed with tech that today’s buyers demand, be more stylish and offer more flexibility of design. It is also expected to be priced higher than today’s Honda Civic and Toyota Corolla. Ford says it expects to sell more of these cars than it does today, but at a profit. Moving production to China where labor is cheaper is key to the strategy, even if some of that savings is eaten up by shipping costs back to the U.S. The China factory will also be able to supply the new car cost effectively to China, which Ford sees as a key market for the new design and where it is playing catch-up to General Motors and Volkswagen in sales and market share.

The Michigan Assembly Plant now making the Focus will be retooled to produce the Ranger midsize pickup in late 2018 and the Bronco midsize SUV in 2020.

Ford’s Hinrichs was asked if he feared fallout from President Trump with his well-known track record for calling out companies for moving jobs out of the U.S., as well as his frequent criticisms of China and the trade imbalance between that country and the U.S. “China gets a lot of attention, we’ll see how this plays out,” Hinrichs said. “But we believe this is a much better plan for our business globally. And it frees up from the original plan about $1 billion of capital that we can reinvest in the business, including exciting things that we’re working on in autonomy and electrification and a lot of that work is done right here in the U.S.”

The change of plans, moving the next Focus from Mexico to China, is the first big strategic decision made by new CEO Jim Hackett, who took over in May as the board ousted CEO Mark Fields.

Other companies are building in China for export to the U.S. as well. GM builds the Envision SUV in China that it sells in the U.S. Tesla is reportedly close to an agreement to build cars in China. Neither the White House, nor President Trump, has commented about the Ford move.

Currently, Editor-in-Chief of New Roads Media, I have covered all aspects of the auto industry for some thirty years for publications including USA Today, Businessweek, AOL Autos, Popular Mechanics, Adweek and Advertising Age. Besides my journalism experience, I have also wo...